Deck 2: Tools of Analysis for International Trade Models

Question 1

Economists use general equilibrium models of an economy to explain

A)consumption levels.
B)production levels.
C)relative prices.
D)All of the above.

Answer 1

D

Question 2

Refer to the figure above.Which of the following is true?

A)Demand plays no role in price setting in this model.
B)Given autarky prices, GDP is maximized by producing at point E.
C)So long as the country is on its production possibility frontier, GDP is maximized.
D)Both A and C are true.

Answer 2

B

Question 3

If individuals have money illusion then they

A)think that money is worthless.
B)ignore the effects on their income or wealth of some price changes in the economy.
C)they base their production and consumption decisions on relative rather than absolute prices.
D)Both B and C.

Answer 3

B
Answer the question(s)below based on the following diagram.

Question 4

In autarky,when a community maximizes its standard of living,its consumption point is

A)below the production possibility frontier.
B)on the production possibility frontier.
C)above the production possibility frontier.
D)can't tell without more information.

Question 5

________ analysis by economists refers to the attempt to answer questions such as should a tax be imposed.

A)Positive
B)Negative
C)Normative
D)Investigative

Question 6

In autarky equilibrium,

A)production equals consumption.
B)exports equal imports.
C)there is no international trade.
D)All of the above.

Question 7

In autarky,when a community maximizes its standard of living,its production point is

A)below the production possibility frontier.
B)on the production possibility frontier.
C)above the production possibility frontier.
D)Can't tell without more information.

Question 8

Indifference curves are downward sloping because

A)when some of one good is taken away the consumer must be compensated with more of the other.
B)higher prices mean less quantity demanded.
C)higher indifference curves mean higher utility.
D)Both A and B.

Question 9

________ analysis by economists refers to the attempt to answer questions such as what are the effects of a tax on production and consumption decisions.

A)Positive
B)Negative
C)Normative
D)Investigative

Question 10

An indifference curve

A)is a locus of bundles of goods such that each good in every bundle yields equal satisfaction.
B)is a locus of bundles of goods such that the consumer is indifferent between each good in every bundle.
C)is a locus of bundles of goods such that the consumer is indifferent between each of the bundles.
D)All of the above.

Question 11

Refer to the figure above.Which of the following is true?

A)The relative price of S is higher at G than at D.
B)The relative price of T is higher at C than at F.
C)A move from C to D would raise community satisfaction.
D)All of the above are true.

Question 12

Refer to the figure above.The relative price of T (in terms of
S)is

A)2.
B)1/2.
C)500.
D)1000.

Question 13

Refer to the figure above.In autarky,the economy would be in general equilibrium at point

A)I.
B)D.
C)E.
D)F.

Question 14

Refer to the figure above.If the relative price of S were to increase,then the price line would

A)shift out in a parallel fashion.
B)shift in in a parallel fashion.
C)become steeper.
D)become flatter.

Question 15

Refer to the figure above.If the relative price of T were to increase,then the price line would

A)shift out in a parallel fashion.
B)shift in a parallel fashion.
C)become steeper.
D)become flatter.

Question 16

Refer to the figure above.If tastes were to change so that S became more preferred relative to T,then,in autarky,production and consumption would move from their initial equilibrium to a point such as

A)C.
B)D.
C)E.
D)F.

Question 17

If a country has a straight (downward sloping)production possibilities frontier,then production is said to be subject to

A)constant opportunity costs.
B)decreasing opportunity costs.
C)first increasing and then decreasing opportunity costs.
D)increasing opportunity costs.

Question 18

If a country has a bowed out (concave to the origin)production possibility frontier,then production is said to be subject to

A)constant opportunity costs.
B)decreasing opportunity costs.
C)first increasing and then decreasing opportunity costs.
D)increasing opportunity costs.

Question 19

Using community indifference curves to reflect tastes of the community

A)is a simple extension of indifference curve analysis because people are so different.
B)cannot usually be done because the community may have inconsistent tastes even though its residents do not.
C)is a simple extension of indifference curve analysis if people are all alike.
D)Both B and C.

Question 20

Refer to the figure above.The relative price of S (in terms of
T)is

A)2.
B)1/2.
C)500.
D)1000.

Question 21

If an economy is characterized by increasing opportunity costs,increasing the production of S by constant amounts results in a constant decrease in the production of T.

Question 22

If a country is subject to increasing opportunity costs,its national supply curve (i.e.the locus of national output levels of S at various relative prices of
S)will have a ________ slope.

A)flat
B)positive
C)negative
D)bowed out

Question 23

If the autarky price of S were lower in country A than in country B,then if trade were allowed

A)A would likely export S to B.
B)A would likely import S from B.
C)neither country would want to trade.
D)None of the above.

Question 24

Which of the following is a Nobel Prize winning economist who argued that theories should be tested based on the validity of their predictions?

A)Milton Friedman.
B)Ben Bernanke.
C)Alan Greenspan.
D)Larry Summers.

Question 25

Indifference curves intersect at the point of utility maximization.

Question 26

A situation in which a country does not take part in international trade is known as

A)autarky.
B)openness neglect.
C)indifference tradeoff.
D)protectionist point.

Question 27

General equilibrium occurs in autarky at the point where the community indifference curve intersects the production possibilities frontier.

Question 28

Per capita real GDP levels provide one possible measure of a country's standard of living.

Question 29

If a country were to experience an increase in its factors of production,its production possibilities frontier would shift outward.

Question 30

If the relative price of S in terms of T is 2 and S has a nominal price of $1,then the nominal price of T is

A)$2.
B)50 cents.
C)1/2 S.
D)Need more information to answer.

Question 31

A diagram that shows the maximum amount of one type of good that can be produced in an economy,given the production of the other is known as

A)an indifference curve.
B)the tradeoff schedule.
C)the production possibility frontier.
D)the balance of trade.

Question 32

If country A produces S at a lower relative price than country B,A is said to have a comparative advantage in S.

Question 33

If individuals have money illusion,they react to changes in certain prices without regard to simultaneous changes in other prices.

Question 34

The absolute value of the slope of the production possibilities frontier at the production point provides a measure of both the relative price of S in terms of T and the opportunity cost of producing one more units of S calculated in terms of output of T foregone.

Question 35

Real GDP changes when

A)all prices change by the same proportion, but all outputs remain constant.
B)some but not all prices change, but outputs remain constant.
C)some outputs change, but prices remain constant.
D)Both B and C.

Question 36

Production under increasing opportunity costs can result from the two industries using factors of production in different combinations.

Question 37

If the relative price of S were to rise,then an individual's indifference curve would rotate toward the T axis.

Question 38

Refer to the figure above.In autarky equilibrium,the relative price is given by the slope of the production possibility frontier at point

A)D.
B)E.
C)F.
D)Can't answer without more information.

Question 39

If the autarky price of S (in terms of
T)were lower in country A than in country B,

A)A has a comparative advantage in S.
B)B has a comparative advantage in T.
C)A has a comparative disadvantage in T.
D)All of the above.

Question 40

If the relative price of S in terms of T is 2 and S has a nominal price of $1,then the relative price of T is

A)$2.
B)50 cents.
C)1/2 S.
D)Need more information to answer.

Question 41

As of 2009,most countries in the world live in autarky.

Question 42

What is the difference between positive and normative analysis?

Question 43

Use a diagram to describe how general equilibrium is reached when a country is subject to increasing opportunity costs.In your answer,
(a) find and label the country's equilibrium production and consumption points and the relative price of S at equilibrium.
(b) explain carefully how the economy would move to equilibrium if it were not initially in equilibrium.

Question 44

Use national demand and supply curves to show
(a) the incentives for trade to begin between nations.
(b) the effect on the likely pattern of trade of a change in technology in A that causes A's national supply curve to shift out.
(c) the effect on the likely pattern of trade of a change in tastes in B in favor of good S.

Question 45

An indifference curve represents the collection of goods and services that an individual has no desire to consume.

Question 46

Explain why indifference curves have the following properties:
(a) downward slope
(b) convex to the origin
(c) higher curves reflect higher utility
(d) non-intersecting

Question 47

Explain the relationship between relative prices and the slope of a country's production possibilities frontier.

Question 48

Normative analysis involves value judgments.